SALES

I. Definition and Essential Requisites of a Contract of Sale

Jackie, 16, inherited a townhouse. Because she wanted to study in an exclusive school, she sold her
townhouse by signing a Deed of Sale and turning over possession of the same to the buyer. When the
buyer discovered she was still a minor, she promised to execute another Deed of Sale when she turns
18. When Jackie turned 25 and was already working, she wanted to annul the sale and return the
buyer's money to recover her townhouse. Was the sale contract void, voidable or valid? Can Jackie
still recover the property? Explain. (2015 BAR)

Answer: The contract of sale was voidable on the ground that Jackie is incapable of giving consent at the
time of the execution of the sale(Art. 1390 and Art. 1327). Jackie can no longer recover the townhouse
unit because if a contract is voidable on the ground of minority, the action to annul it must be filed
within four (4) years from attainment of the age of majority. Since Jackie was already 25 years old, the
action has clearly prescribed because she should have filed it before she reached the age of 22 (Art.
1391).

Z, a gambler, wagered and lost P2 Million in baccarat, a card game. He was pressured into signing a
Deed of Absolute Sale in favor of the winner covering a parcel of land with improvements worth P20
Million. One month later, the supposed vendee of the property demanded that he and his family
vacate the property subject of the deed of sale. Was the deed of sale valid? What can Z do? (2015
BAR)

Answer: The sale is valid. Being pressured to sign the deed of sale is not equivalent to vitiation of
consent under Art. 1390(2). Mere pressure cannot constitute intimidation because for intimidation to
arise, the party must be compelled by a reasonable or well- grounded fear of an imminent & grave
danger upon person & property of himself, spouse, ascendants or descendants. It also cannot constitute
undue influence or when a person takes improper advantage of his power over will of another depriving
latter of reasonable freedom of choice because there was no indication that the winner has moral
ascendency or power over Z. However, Z can recover his losses from the winner because the law
provides that no action can be maintained by the winner for the collection of what he has won in any
game of chance. But any loser in a game of chance may recover his loss from the winner, with legal
interests from the time he paid the amount lost (Art. 2014).

Tess leased her 1,500 sq. m. lot in Antipolo City to Ruth for a period of three (3) years, from January
2010 to February 2013. On March 19, 2011, Tess sent a letter to Ruth, part of which reads as follows:
"I am offering you to buy the property you are presently leasing at P5,000.00 per sq. m. or for a total
of P7,500,000.00. You can pay the contract price by installment for two (2) years without interest. I
will give you a period of one (1) year from receipt of this letter to decide whether you will buy the
property." After the expiration of the lease contract, Tess sold the property to her niece for a total
consideration of P4 million. Ruth filed a complaint for the annulment of the sale, reconveyance and
damages against Tess and her niece. Ruth alleged that the sale of the leased property violated her
right to buy under the principle of right of first refusal. Is the allegation of Ruth tenable? (2014 BAR)

Answer: NO, the allegation of Ruth is not tenable. The letter written by Tess did not grant a right of first
refusal to Ruth. At most, it is to be construed as an option contract whereby Ruth was given the right to
buy or not to buy the leased property. An option is itself not a purchase but it merely secures the
privilege to buy. However, the option is not valid because it was not supported by a cause or
consideration distinct from the price of the property (Art. 1479). Also, Ruth does not appear to have
exercised her option before the offer was withdrawn by the subsequent sale of the property to the
niece of Tess.

Lino entered into a contract to sell with Ramon, undertaking to convey to the latter one of the five
lots he owns, without specifying which lot it was, for the price of P1 million. Later, the parties could
not agree which of five lots he owned Lino undertook to sell to Ramon. What is the standing of the
contract? (2011 BAR)
(A) Unenforceable.
(B) Voidable.
(C) Rescissible.
(D) Void.

Spouses Biong and Linda wanted to sell their house. They found a prospective buyer, Ray. Linda
negotiated with Ray for the sale of the property. They agreed on a fair price of P2 Million. Ray sent
Linda a letter confirming his intention to buy the property. Later, another couple, Bemie and Elena,
offered a similar house at a lower price of PI.5 Million. But Ray insisted on buying the house of Biong
and Linda for sentimental reason. Ray prepared a deed of sale to be signed by the couple and a
manager’s check of P2 Million. After receiving the P2 Million, Biong signed the deed of sale. However,
Linda was not able to sign it because she was abroad. On her return she refused to sign the document
saying she changed her mind. Linda filed suit for nullification of the deed of sale and for moral and
exemplary damages against Ray. (1) Will the suit prosper? Explain. 2.5% (2006 Bar Question)

SUGGESTED ANSWER:

The suit will prosper. The sale was void because Linda did not give her written consent to the sale. In
Jader-Manalo v. Camaisa, 374 SCRA 498 (2002), the Supreme Court has ruled that the sale of conjugal
property is void if both spouses have not given their written consent to it and even if the spouse who did
not sign the Deed of Sale participated in the negotiation of the contract. In Abalos v. Macatangay, 439
SCRA 649 (2004), the Supreme Court even held that for the sale to be valid, the signatures of the
spouses to signify their written consent must be on the same document. In this case, Linda, although she
was the one who negotiated the sale, did not give her written consent to the sale. Hence, the sale is
void. However, Linda will not be entitled to damages because Ray is not in any way in bad faith.

ANOTHER SUGGESTED ANSWER: The suit will not prosper because the contract of sale has already been
perfected and partly consummated. The contract of sale is perfected upon the meeting of the minds of
the buyer and seller on to the thing to be sold and on the price thereof. In this case, Linda had a meeting
of minds with Ray when they agreed that the property will be sold for 2 million pesos at the conclusion
of her negotiations with him, while Biong had a meeting of minds with Ray when he signed the Deed of
Sale and accepted the 2 millionpeso payment by Ray. Linda is estopped from questioning the validity of
the contract she herself negotiated with Ray.

(2) Does Ray have any cause of action against Biong and Linda? Can he also recover damages from the
spouses? Explain. 2.5% (2006 Bar Question)

SUGGESTED ANSWER: Yes, Ray has a cause of action against Linda and Biong for the return of the 2
million pesos he paid for the property. He may recover damages from the spouses, if it can be proven
that they were in bad faith in backing out from the contract, as this is an act contrary to morals and
good customs under Articles 19 and 21 of the Civil Code.

ANOTHER SUGGESTED ANSWER: Assuming that the contract of sale has been perfected, Ray may file a
counterclaim against Linda and Biong for specific performance or rescission, with damages in either
case. Linda has breached the obligation created by the contract when she filed an action for nullification
of sale. On account of Linda’s bad faith or fraud, Ray may ask for damages under Article 1170 of the Civil
Code.

Distinguish between a contract of real estate mortgage and a contract of sale with right of repurchase.
(1989 Bar Question)

SUGGESTED ANSWER:
1) Real estate mortgage is an accessory contract. A contract of sale with right of repurchase is a principal
contract.
2) Real estate mortgage involves no transfer of title. A contract of sale involves a conditional transfer of
title.
3) Real estate mortgage involves no transfer of possession. A contract of sale involves a conditional
transfer of possession.
4) In a real estate mortgage the creditor has no rights to the fruits. In a contract of sale, the vendee is
entitled to the fruits.
5) In a real estate mortgage, upon default the creditor is not the owner. In a contract of sale, upon
consolidation, the vendee is the owner.

RECOMMENDATION OF THE COMMITTEE: Any three (3) of the foregoing distinctions should be given full
credit.

II. Parties to a Contract of Sale

Nante, a registered owner of a parcel of land in Quezon City, sold the property to Monica under a
deed of sale which reads as follows: "That for and in consideration of the sum of P500,000.00, value to
be paid and delivered to me, and receipt of which shall be acknowledged by me to the full satisfaction
of Monica, referred to as Vendee, I hereby sell, transfer, cede, convey, and assign, as by these
presents, I do have sold, transferred, ceded, conveyed and assigned a parcel of land covered by TCT
No. 2468 in favor of the Vendee." After delivery of the initial payment of P100,000.00, Monica
immediately took possession of the property. Five (5) months after, Monica failed to pay the
remaining balance of the purchase price. Nante filed an action for the recovery of possession of the
property. Nante alleged that the agreement was one to sell, which was not consummated as the full
contract price was not paid. Is the contention of Nante tenable? (2014 BAR)

Answer: NO, the contention of Nante is not tenable. The deed itself states that for consideration
received, he sells, transfers, and conveys the land to Monica and there was delivery of the property to
the latter. The contract is clearly one of sale as there was no reservation of ownership on the part of the
seller Nante. The non-payment of the price in a contract of sale would only entitle the seller to rescind
the contract but it does not thereby prevent the transfer of ownership particularly so as in this case,
where there was already delivery to the buyer.
Rica petitioned for the annulment of her ten-year old marriage to Richard. Richard hired Atty. Cruz to
represent him in the proceedings. In payment for Atty. Cruz's acceptance and legal fees, Richard
conveyed to Atty. Cruz a parcel of land in Taguig that he recently purchased with his lotto winnings.
The transfer documents were duly signed and Atty. Cruz immediately took possession by fencing off
the property's entire perimeter. Desperately needing money to pay for his mounting legal fees and his
other needs and despite the transfer to Atty. Cruz, Richard offered the same parcel of land for sale to
the spouses Garcia. After inspection of the land, the spouses considered it a good investment and
purchased it from Richard. Immediately after the sale, the spouses Garcia commenced the
construction of a three-story building over the land, but they were prevented from doing this by Atty.
Cruz who claimed he has a better right in light of the prior conveyance in his favor. Is Atty. Cruz's claim
correct? (2013 BAR)

Answer: NO, Atty. Cruz is not correct. At first glance, it may appear that Atty. Cruz is the one who has a
better right because he first took possession of the property. However, a lawyer is prohibited under Art.
1491 of the Civil Code from acquiring the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession. While the suit is for annulment of marriage and it
may be argued that the land itself is not the object of the litigation, the annulment of marriage, if
granted, will carry with it the liquidation of the absolute community or conjugal partnership of the
spouses as the case may be (Art. 50 in relation to Art. 43, FC). Richard purchased the land with his lotto
winnings during the pendency of the suit for annulment and on the assumption that the parties are
governed by the regime of absolute community or conjugal partnership, winnings from gambling or
betting will form part thereof. Also, since the land is part of the absolute community or conjugal
partnership of Richard and Rica, it may not be sold or alienated without the consent of the latter and
any disposition or encumbrance of the property of the community or conjugal property without the
consent of the other spouse is void (Art. 96 and Art. 124, FC).

III. Subject Matter

Which phrase most accurately completes the statement – If at the time the contract of sale is
perfected, the thing which is the object of the contract has been entirely lost: (2012 BAR)

a) the buyer bears the risk of loss.

b) the contract shall be without any effect.
c) the seller bears the risk of loss.
d) the buyer may withdraw from the contract.

Can future inheritance be the subject of a contract of sale?(2011 BAR)

(A) No, since it will put the predecessor at the risk of harm from a tempted buyer, contrary to public
policy.
(B) Yes, since the death of the decedent is certain to occur.
(C) No, since the seller owns no inheritance while his predecessor lives.
(D) Yes, but on the condition that the amount of the inheritance can only be ascertained after the
obligations of the estate have been paid.
IV. Obligations of the Seller to Transfer Ownership

JV, owner of a parcel of land, sold it to PP. But the deed of sale was not registered. One year later, JV
sold the parcel again to RR, who succeeded to register the deed and to obtain a transfer certificate of
title over the property in his own name. Who has a better right over the parcel of land, RR or PP?
Why? Explain the legal basis for your answer. (5%) (2004 Bar Question)

SUGGESTED ANSWER: It depends on whether or not RR is an innocent purchaser for value. Under the
Torrens System, a deed or instrument operated only as a contract between the parties and as evidence
of authority to the Register of Deeds to make the registration. It is the registration of the deed or the
instrument that is the operative act that conveys or affects the land. (Sec. 51, P.D. No. 1529). In cases of
double sale of titled land, it is a well-settled rule that the buyer who first registers the sale in good faith
acquires a better right to the land. (Art. 1544, Civil Code). Persons dealing with property covered by
Torrens title are not required to go beyond what appears on its face. (Orquiola v. CA386, SCRA301,
[2002]; Domingo v. Roces 401 SCRA 197, [2003]). Thus, absent any showing that RR knew about, or
ought to have known the prior sale of the land to PP or that he acted in bad faith, and being first to
register the sale, RR acquired a good and a clean title to the property as against PP.

On June 15, 1995, Jesus sold a parcel of registered land to Jaime. On June 30. 1995, he sold the same
land to Jose. Who has a better right if:

a. the first sale is registered ahead of the second sale, with knowledge of the latter. Why? (3%)
b. the second sale is registered ahead of the first sale, with knowledge of the latter? Why? (5%) (2001
Bar Question)

SUGGESTED ANSWER:
a. The first buyer has the better right if his sale was first to be registered, even though the first buyer
knew of the second sale. The fact that he knew of the second sale at the time of his registration does
not make him as acting in bad faith because the sale to him was ahead in time, hence, has a priority in
right. What creates bad faith in the case of double sale of land is knowledge of a previous sale.

b. The first buyer is still to be preferred, where the second sale is registered ahead of the first sale but
with knowledge of the latter. This is because the second buyer, who at the time he registered his sale
knew that the property had already been sold to someone else, acted in bad faith. (Article 1544, C.C.)

If the same thing should have been sold to different vendees, to whom shall the ownership be
transferred? (1989 Bar Question)

SUGGESTED ANSWER: If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property. Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property. Should there be an inscription, the
ownership shall pertain to the person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is good faith.

Miguel, Carlos and Lino are neighbors. Miguel owned a piece of registered land which both Carlos and
Lino wanted to buy. Miguel sold the land to Carlos. The sale was not registered upon the request of
Miguel. Later on, the same property was sold by Miguel to Lino. Miguel told Carlos about the second
sale. Carlos immediately tried to see Lino to discuss the matter and inform him of the previous sale to
him (Carlos) of the same property but Lino refused to see Carlos. Thereupon Carlos annotated in the
Registry of Property his adverse claim on the property. A week later, Lino registered the sale on his
favor and had a new transfer certificate of title issued in his name. However, the adverse claim of
Carlos was duly annotated in the title. Notwithstanding, Lino took possession of the property and
built a small bungalow thereon. Who is the rightful owner of the property? Explain. (1987 Bar
Question)

SUGGESTED ANSWER: In double sales, under Article 1544 the land sold belongs to the first registrant in
good faith. If none, it belongs to the first possessor in good faith. If none it belongs to the person with
the oldest title, provided there is good faith. Carlos, who has the oldest title, is therefore the rightful
owner of the property, because there was no registration in good faith by Lino.

V. Price

Sergio is the registered owner of a 500-square meter land. His friend, Marcelo, who has long been
interested in the property, succeeded in persuading Sergio to sell it to him. On June 2, 2012, they
agreed on the purchase price of P600,000 and that Sergio would give Marcelo up to June 30, 2012
within which to raise the amount. Marcelo, in a light tone usual between them, said that they should
seal their agreement through a case of Jack Daniels Black and P5,000 "pulutan" money which he
immediately handed to Sergio and which the latter accepted. The friends then sat down and drank the
first bottle from the case of bourbon. On June 15, 2013, Sergio learned of another buyer, Roberto,
who was offering P800,000 in ready cash for the land. When Roberto confirmed that he could pay in
cash as soon as Sergio could get the documentation ready, Sergio decided to withdraw his offer to
Marcelo, hoping to just explain matters to his friend. Marcelo, however, objected when the
withdrawal was communicated to him, taking the position that they have a firm and binding
agreement that Sergio cannot simply walk away from because he has an option to buy that is duly
supported by a duly accepted valuable consideration. (2013 BAR)

a. Does Marcelo have a cause of action against Sergio?

Answer: YES. Marcelo has a cause of action against Sergio. Under Art. 1324, when the offerer has
allowed the offeree a certain period to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except when the option is founded upon a
consideration, as something paid or promised. An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price (Art. 1479). Consideration in an option contract may be anything of
value, unlike in sale where it must be the price certain in money or its equivalent (San Miguel Properties
Inc v. Spouse: Huang, G.R. No. 137290, July 31, 2000). Here, the ease of Jack Daniels Black and the 5,000
“pulutan” money was a consideration to “seal their agreement", an agreement that Marcelo is given
until June 30, 2012 to buy the parcel of land. There is also no showing that such consideration will be
considered part of the purchase price. Thus, Sergio‘s unilateral withdrawal of the offer violated the
Option Contract between him and Marcelo.

b. Can Sergio claim that whatever they might have agreed upon cannot be enforced because any
agreement relating to the sale of real property must be supported by evidence in writing and they
never reduced their agreement to writing?
Answer: NO. Sergio‘s claim has no legal basis. The contract at issue in the present case is the option
contract, not the contract of sale for the real property. Therefore, Art. I403 does not apply. The Statute
of Frauds covers an agreement for the sale of real property or of an interest therein. Such agreement is
unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing (Art.
1403 [e]). Here, Marcelo and Sergio merely entered into an Option Contract, which refers to a unilateral
promise to buy or sell, which need not be in writing to be enforceable. (Sanchez v. Rigos, G.R. No. L-
25494, June 14, I972, citing Atkins, Kroll and Co., Inc. v. Cua Hian Tek and Southwestern Sugar &
Molasses Co. v. Atlantic Gulf & Pacific Co.).

A contract granting a privilege to a person, for which he has paid a consideration, which gives him the
right to buy certain merchandise or specified property, from another person, at anytime within the
agreed period, at a fixed price. What contract is being referred to? (2012 BAR)

a) Option Contract
b) Contract to Sell
c) Contract of Sale
d) Lease

VI. Formation of Contract of Sale

Michael Fermin, without the authority of Pascual Lacas, owner of a car, sold the same car in the name
of Mr. Lacas to Atty. Buko. The contract between Atty. Buko and Mr. Lacas is --- (2012 BAR)

a) void because of the absence of consent from the owner, Mr. Lacas.
b) valid because all of the essential requisites of a contract are present.
c) unenforceable because Michael Fermin had no authority but he sold the car in the name of Mr. Lacas,
the owner.
d) rescissible because the contract caused lesion to Atty. Buko

Which of the following contracts is void? (2012 BAR)

a) An oral sale of a parcel of land.

b) A sale of land by an agent in a public instrument where his authority from the principal is oral.
c) A donation of a wrist watch worth P 4,500.00.
d) A relatively simulated contract.

Aligada orally offered to sell his two-hectare rice land to Balane for P 10Million. The offer was orally
accepted. By agreement, the land was to be delivered (through execution of a notarized Deed of Sale)
and the price was to be paid exactly one-month from their oral agreement. Which statement is most
accurate? (2012 BAR)

a) If Aligada refuses to deliver the land on the agreed date despite payment by Balane, the latter may
not successfully sue Aligada because the contract is oral.
b) If Aligada refused to deliver the land, Balane may successfully sue for fulfillment of the obligation
even if he has not tendered payment of the purchase price.
c) The contract between the parties is rescissible.
d) The contract between the parties is subject to ratification by the parties.
A contract to sell is the same as a conditional contract of sale. Do you agree? Explain your answer.
(2012 BAR)

Answer: NO. A contract to sell is specie of conditional sale. The contract to sell does not sell a thing or
property; it sells the right to buy the property. A conditional sale is a sale subject to the happening or
performance of a condition, such as payment of the full purchase price, or the performance of other
prestation to give, to do, or not to do. Compliance with the condition automatically gives the right to the
vendee to demand the delivery of the object of the sale. In a contract to sell, however, the compliance
with the condition does not automatically sell the property to the vendee. It merely gives the vendee
the right to compel the vendor to execute the deed of absolute sale.

On July 14, 2004, Pedro executed in favor of Juan a Deed of Absolute Sale over a parcel of land
covered by TCT No. 6245. It appears in the Deed of Sale that Pedro received from Juan P120,000.00 as
purchase price. However, Pedro retained the owner’s duplicate of said title. Thereafter, Juan, as
lessor, and Pedro, as lessee, executed a contract of lease over the property for a period of one (1) year
with a monthly rental of P1,000.00. Pedro, as lessee, was also obligated to pay the realty taxes on the
property during the period of lease. Subsequently, Pedro filed a complaint against Juan for the
reformation of the Deed of Absolute Sale, alleging that the transaction covered by the deed was an
equitable mortgage. In his verified answer to the complaint, Juan alleged that the property was sold
to him under the Deed of Absolute Sale, and interposed counterclaims to recover possession of the
property and to compel Pedro to turn over to him the owner's duplicate of title. Resolve the case with
reasons. (6%) (2005 Bar Question)

SUGGESTED ANSWER: An equitable mortgage arises from a transaction, regardless of its form, which
results into a security, or an offer or attempt to pledge land as security for a debt or liability. Its essence
is the intent of the parties to create a mortgage, lien or charge on the property sufficiently described or
identified to secure an obligation, which intent must be clearly established in order that such a
mortgage may exist. Defendant's defense that he acquired the land through an Absolute Deed of Sale
and not through pacto de retro is untenable. The presumption of equitable mortgage under Article 1602
of the Civil Code, equally applies to a contract purporting to be an absolute sale (Article 1604, NCC). The
facts and circumstances that Pedro retained possession of the Owner's Duplicate Copy of the Certificate
of Title; that he remained in possession of the land as lessee; that he bound himself to pay the realty
taxes during the period of lease, are matters collectively and strongly indicating that the Deed of
Absolute Sale is an equitable mortgage. In case of doubt, the Deed of Sale should be considered as a
loan with mortgage, because this juridical relation involves a lesser transmission of rights and interests.
If the transaction is proven to be an equitable mortgage, Pedro's prayer for reformation of the
instrument should be granted in accordance with Article 1605 of the Civil Code. Thus, in case of non-
payment, he may foreclose the mortgage and consolidate his ownership of the land. In that event,
Juan's counterclaim to recover possession of the land and to compel Pedro to surrender the Owner’s
Duplicate Copy of the title becomes a consequential right.

In a true pacto de retro sale, the title and ownership of the property sold are immediately vested in
the vendee a retro subject only to the resolutory condition of repurchase by the vendor a retro within
the stipulated period. This is known as (2011 BAR)

(A) equitable mortgage.

(B) conventional redemption.
(C) legal redemption.
(D) equity of redemption

Arturo gave Richard a receipt which states: “Receipt Received from Richard as down payment

For my 1995 Toyota Corolla with

plate No. XYZ-1 23 .............................. P50.000.00
Balance payable: 12/30/01 ............ P50 000.00
September 15, 2001.
(Sgd.) Arturo

Does this receipt evidence a contract to sell? Why? (5%) (2001 Bar Question)

SUGGESTED ANSWER: It is a contract of sale because the seller did not reserve ownership until he was
fully paid.

A. State the basic difference (only in their legal effects) – a. Between a contract to sell, on the one
hand, and a contract of sale, on the other; b. Between a conditional sale, on the one hand, and an
absolute sale, on the other hand. (1997 Bar Question)

SUGGESTED ANSWER:

a. In a contract of sale, ownership is transferred to the buyer upon delivery of the object to him while in
a contract to sell, ownership is retained by the seller until the purchase price is fully paid. In a contract
to sell, delivery of the object does not confer ownership upon the buyer. In a contract of sale, there is
only one contract executed between the seller and the buyer, while in a contract to sell, there are two
contracts, first the contract to sell (which is a conditional or preparatory sale) and a second, the final
deed of sale or the principal contract which is executed after full payment of the purchase price.

b. A conditional sale is one where the vendor is granted the right to unilaterally rescind the contract
predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. An
absolute sale is one where the title to the property is not reserved to the vendor or if the vendor is not
granted the right to rescind the contract based on the fulfillment or non-fulfillment, as the case may be,
of the prescribed condition.

On 20 December 1970, Juliet, a widow, borrowed from Romeo P4.000.00 and, as security therefore,
she executed a deed of mortgage over one of her two (2) registered lots which has a market value of
P4 5,000.00. The document and the certificate of title of the property were delivered to Romeo. On 2
June 1971, Juliet obtained an additional sum of P3,000.00 from Romeo. On this date, however, Romeo
caused the preparation of a deed of absolute sale of the above property, to which Juliet affixed her
signature without first reading the document. The consideration indicated is P7.000.00. She thought
that this document was similar to the first she signed. When she reached home, her son X, after
reading the duplicate copy of the deed, informed her that what she signed was not a mortgage but a
deed of absolute sale. On the following day, 3 June 1971, Juliet, accompanied by X, went back to
Romeo and demanded the reformation it, Romeo prepared and signed a document wherein, as
vendee in the deed of sale above mentioned, he obligated and bound himself to resell the land to
Juliet or her heirs and successors for the same consideration as reflected in the deed of sale
(P7.000.00) within a period of two (2) years, or until 3 June 1973. It is further stated therein that
should the Vendor (Juliet) fail to exercise her right to redeem within the said period, the conveyance
shall be deemed absolute and irrevocable. Romeo did not take possession of the property. He did not
pay the taxes thereon. Juliet died in January 1973 without having repurchased the property. Her only
surviving heir, her son X, failed to repurchase the property on or before 3 June 1973. in 1975, Romeo
sold the property to Y for P50.000.00. Upon learning of the sale, X filed an action for the nullification
of the sale and for the recovery of the property on the ground that the so-called deed of absolute sale
executed by his mother was merely an equitable mortgage, taking into account the inadequacy of the
price and the failure of Romeo to take possession of the property and to pay the taxes thereon.
Romeo and Y maintain that there was a valid absolute sale and that the document signed by the
former-on 3 June 1973 was merely a promise to sell.

A. If you were the Judge, would you uphold the theory f X?

B. If you decide in favor of Romeo and Y, would you uphold the validity of the promise to sell? (1991
Bar Question)

SUGGESTED ANSWER:

A. I will not uphold the theory of X for the nullification of the sale and for the recovery of the property
on the ground that the so-called sale was only an equitable mortgage. An equitable mortgage may arise
only if, in truth, the sale was one with the right of repurchase. The facts of the case state that the right
to repurchase was granted after the absolute deed of sale was executed. Following the rule in Cruzo vs.
Carriaga (174 SCRA 330), a deed of repurchase executed independently of the deed of sale where the
two stipulations are found in two instruments instead of one document, the right of repurchase would
amount only to one option granted by the buyer to the seller. Since the contract cannot be upheld as a
contract of sale with the right to repurchase, Art. 1602 of the Civil Code on equitable mortgage will not
apply. The rule could have been different if both deeds were executed on the same occasion or date, in
which case, Cinder the ruling in spouses Claravall v. CA (190 SCRA 439), the contract may still be
sustained as an equitable mortgage, given the circumstances expressed in Art. 1602. The reserved right
to repurchase is then deemed an original intention.

B. If I were to decide in favor of Romeo and Y. I would not uphold the validity of the promise to sell, so
as to enforce it by an action for specific performance. The promise to sell would only amount to a mere
offer and, therefore, it is not enforceable unless it was sought to be exercised before a withdrawal or
denial thereof. Even assuming the facts given at the end of the case, there would have been no separate
consideration for such promise to sell. The contract would at most amount to an option which again
may not be the basis for an action for specific performance.

“X” came across an advertisement in the “Manila Daily Bulletin” about the rush sale of three slightly
used TOYOTA cars, Model 1989 for only P200,000 each. Finding the price to be very cheap and in
order to be sure that he gets one unit ahead of the others, “X” immediately phoned the advertiser “Y”
and place an order for one car. “Y” accepted the order and promised to deliver the ordered unit on
July 15, 1989. On the said date, however, “Y” did not deliver the unit. “X” brings an action to compel
“Y” to deliver the unit. Will such action prosper? Give your reasons. (1989 Bar Question)

SUGGESTED ANSWER: The contract in this case has been perfected. However, the contract is
unenforceable under the statute of frauds. The action will prosper if there is no objection to the oral
evidence, which amounts to a waiver of the statute of frauds.
Eulalia was engaged in the business of buying and selling large cattle. In order to secure the financial
capital, she advanced for her employees (biyaheros). She required them to surrender TCT of their
properties and to execute the corresponding Deeds of Sale in her favor. Domeng Bandong was not
required to post any security but when Eulalia discovered that he incurred shortage in cattle
procurement operation, he was required to execute a Deed of Sale over a parcel of land in favor of
Eulalia. She sold the property to her grand neice Jocelyn who thereafter instituted an action for
ejectment against the Spouses Bandong. To assert their right, Spouses Bandong filed an action for
annulment of sale against Eulalia and Jocelyn alleging that there was no sale intended but only
equitable mortgage for the purpose of securing the shortage incurred by Domeng in the amount of P
70, 000.00 while employed as "biyahero" by Eulalia. Was the Deed of Sale between Domeng and
Eulalia a contract of sale or an equitable mortgage? Explain. (2012 BAR)

Answer: The contract between Domeng Bandong and Eulalia was an equitable mortgage rather than a
contract of sale. The purported deed of sale was actually intended to merely secure the payment of the
shortage incurred by Domeng in the conduct of the cattlebuying operations. Under Art. 1602, the
contract shall be presumed to be an equitable mortgage when it may be fairly inferred that the real
intention of the parties is simply to secure the payment of a debt or the performance of any other
obligation. The present transaction was clearly intended to just secure the shortage incurred by Eulalia
because Bandong remained in possession of the property in spite of the execution of the sale.

a. x x x
b. One-half of a parcel of land belonging to A and B was sold by X to Y for the amount of PI ,500.00.
The sale was executed verbally. One year later, A and B sold the entire land to X. Is the sale executed
verbally by X to Y valid and binding? Reasons.
c. Distinguish between a contract of sale and a contract to sell. (1988 Bar Question)

SUGGESTED ANSWER:

(b) The sale, although not contained in a public instrument or formal writing, is nevertheless valid and
binding for the time- honored rule is that even a verbal contract of sale qf real estate produces legal
effects between the parties. In the premises, Art. 1434 or the Civil Code, which declares that when a
person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor
acquires title thereto, such title passes by operation of law to the buyer or grantee, is applicable.
(Bucton vs. Gabar, 55 SCRA 499.)

ALTERNATIVE ANSWERS TO (b): 1. The contract of sale is valid and enforceable in view of the payment
of the price of P1,500 But there is no showing the problem that there was delivery of the land.
Accordingly, Article 1434 does not apply. However, Y can compel under Article 1357 to observe the
proper form of a deed of sale involving real property and simultaneously compel specific performance to
deliver. 2. The verbal sale of land is unenforceable since there is no statement in the problem that the
agreed price of P1,500 was paid, nor was the land delivered. Being, Article 1434 will not apply since it is
predicated on a valid or enforceable contract of sale.

(c) The two may be distinguished from each other in the following ways:
1. In the first, title passes to the vendee upon delivery of the thing sold, whereas in the second, by
agreement, ownership is reserved in the vendor and is not to pass until full payment of the price.
2. In the first, nonpayment is a negative resolutory condition, whereas in the second, full payment is a
positive suspensive condition.
3. In the first, the vendor has lost and cannot recover ownership until and unless the Contract is
resolved or rescinded, whereas in the second, title remains in the vendor, and when he seeks to eject
the vendee because of noncompliance by such vendee with the suspensive condition stipulated, he is
enforcing the contract and not resolving the same. (Santos vs. Santos, CA, 47 Off. Gaz; 6372.)

VII. Transfer of Ownership

May a person sell something that does not belong to him? Explain. (2003 Bar Question)

SUGGESTED ANSWER: Yes, a person may sell something which does not belong to him. For the sale to
be valid, the law does not require the seller to be the owner of the property at the time of the sale.
(Article 1434, NCC). If the seller cannot transfer ownership over the thing sold at the time of delivery
because he was not the owner thereof, he shall be liable for breach of contract.

A granted B the exclusive right to sell his brand of Maong pants in Isabela, the price for his
merchandise payable within 60 days from delivery, and promising B a commission of 20% on all sales.
After the delivery of the merchandise to B but before he could sell any of them, BOs store in Isabela
was completely burned without his fault, together with all of A’s pants. Must B pay A for his lost
pants? Why? (5%) (1999 Bar Question)

SUGGESTED ANSWER: The contract between A and B is a sale not an agency to sell because the price is
payable by B upon 60 days from delivery even if B is unable to resell it. If B were an agent, he is not
bound to pay the price if he is unable to resell it. As a buyer, ownership passed to B upon delivery and,
under Art. 1504 of the Civil Code, the thing perishes for the owner. Hence, B must still pay the price.

Using a falsified manager’s check, Justine, as the buyer, was able to take delivery of a second hand car
which she had just bought from United Car Sales, Inc. The sale was registered with the Land
Transportation Office. A week later, the seller learned that the check had been dishonored, but by
that time, Justine was nowhere to be seen. It turned out that Justine had sold the car to Jerico, the
present possessor who knew nothing about the falsified check. In a suit by United Car Sales, Inc.
against Jerico for recovery of the car, plaintiff alleges it had been unlawfully deprived of its property
through fraud and should, consequently, be allowed to recover it without having to reimburse the
defendant for the price the latter had paid. Should the suit prosper? (5%) (1998 Bar Question)

SUGGESTED ANSWER: The suit should prosper as to the recovery of the car. However, since Jerico was
not guilty of any fraud and appears to be an Innocent purchaser for value, he should be reimbursed for
the price he paid. This is without prejudice to United Car Sales, Inc. right of action against Justine. As
between two innocent parties, the party causing the Injury should suffer the loss. Therefore, United Car
Sales, Inc. should suffer the loss.

ALTERNATIVE ANSWER: Yes, the suit will prosper because the criminal act of estafa should be deemed
to come within the meaning of unlawful deprivation under Art. 559, Civil Code, as without it plaintiff
would not have parted with the possession of its car.

ANOTHER ANSWER: No, the suit will not prosper. The sale is valid and Jerico is a buyer in good faith.

ANOTHER ANSWER: Under the law on Sales, when the thing sold is delivered by the seller to the buyer
without reservation of ownership, the ownership is transferred to the buyer. Therefore in the suit of
United Car Sales, Inc. against Jerico for the recovery of the car, the plaintiff should not be allowed to
recover the car without reimbursing the defendant for the price that the latter paid. (EDCA Publishing
and Distributing Corp. vs. Santos.184 SCRA 614, April 26, 1990)

In a 20-year lease contract over a building, the lessee is expressly granted a right of first refusal should
the lessor decide to sell both the land and building. However, the lessor sold the property to a third
person who knew about the lease and in fact agreed t respect it. Consequently, the lessee brings an
action against both the lessor-seller and the buyer (a) to rescind the sale and (b) to compel specific
performance of his right of first refusal in the sense that the lessor should be ordered to execute a
deed of absolute sale infavor of the lessee at the same price. The defendants contend that the
plaintiff can neither seek rescission of the sale nor compel specific performance of a “mere" right of
first refusal. Decide the case. [5%] (1998 Bar Question)

SUGGESTED ANSWER: The action filed by the lessee, for both rescission of the offending sale and
specific performance of the right of first refusal which was violated, should prosper. The ruling in
Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc. (264 SCRA 483), a case with similar facts,
sustains both rights of action because the buyer in the subsequent sale knew the existence of right of
first refusal, hence in bad faith.

ANOTHER ANSWER: The action to rescind the sale and to compel the right to first refusal will not
prosper. (Ang Yu Asuncion vs. CA, 238 SCRA 602). The Court ruled in a unanimous en banc decision that
the right of first refusal is not founded upon contract but on a quasi-delictual relationship covered by
the principles of human relations and unjust enrichment (Art. 19, et seq. Civil Code). Hence the only
action that will prosper according to the Supreme Court is an "action for damages in a proper forum for
the purpose."

Peter Co, a trader from Manila, has dealt business with Allied Commodities in Hongkong for five years.
All through the years. Peter Go accumulated an indebtedness of P500,000.00 with Allied
Commodities. Upon demand by its agent in Manila, Peter Co paid Allied Commodities by check the
amount owed. Upon deposit in the payee’s account in Manila, the check was dishonored for
insufficiency of funds. For and in consideration of PI.00, Allied Commodities assigned the credit to
Hadji Butu who brought suit against Peter Co in the RTC of Manila for recovery of the amount owed.
Peter Co moved to dismiss the complaint against him on the ground that Hadji Butu was not a real
party in interest and. therefore, without legal capacity to sue and that he had not agreed to a
subrogation of creditor. Will Peter Co’s defense of absence of agreement to a subrogation of creditor
prosper? (1993 Bar Question)

SUGGESTED ANSWER: No, Co’s defense will not prosper. This is not a case of subrogation, but an
assignment of credit. Assignment of credit is the process of transferring the right of the assignor to the
assignee. The assignment may be done either gratuitously or onerously, in which case, the assignment
has an effect similar to that of a sale (Nyco Sales Corp.v.BA Finance Corp. G.R. No.71694, Aug. 16, 1991
200 SCRA 637). As a result of the assignment, the plaintiff acquired all the rights of the assignor
including the right to sue in his own name as the legal assignee. In assignment, the debtor’s consent is
not essential for the validity of the assignment (Art. 1624; 1475, CC; Rodriguez v. CA, et al, G. R No.
84220. March 25, 1992 207 SCRA 553).

ALTERNATIVE ANSWER: No, the defense of Peter Co will not prosper. Hadji Butu validly acquired his
right by an assignment of credit under Article 1624 of the Civil Code. However, the provisions on the
contract of sale (Article 1475 Civil Code) will apply, and the transaction is covered by the Statute of
Frauds. (Art. 1403 par. (2) Civil Code)

Pablo sold his car to Alfonso who issued a postdated check in full payment therefor. Before the
maturity of the check, Alfonso sold the car to Gregorio who later sold it to Gabriel. When presented
for payment, the check issued by Alfonso was dishonored by the drawee bank for the reason that he,
Alfonso, had already closed his account even before he issued his check. Pablo sued to recover the car
from Gabriel alleging that he (Pablo) had been unlawfully deprived of it by reason of Alfonso’s
deception. Will the suit prosper? (1991 Bar Question)

SUGGESTED ANSWER: No. The suit will not prosper because Pablo was not unlawfully deprived of the
car although he was unlawfully deprived of the price. The perfection of the sale and the delivery of the
car was enough to allow Alfonso to have a right of ownership over the car, which can be lawfully
transferred to Gregorio. Art. 559 applies only to a person who is in possession in good faith of the
property, and not to the owner thereof. Alfonso, in the problem, was the owner, and, hence, Gabriel
acquired the title to the car. Non-payment of the price in a contract of sale does not render ineffective
the obligation to deliver. The obligation to deliver a thing is different from the obligation to pay its price.
EDCA Publishing Co. v. Santos (1990)

VIII. Risk of Loss

D sold a second-hand car to E for P150,000.00 The agreement between D and E was that half of the
purchase price, or P75,000.00, shall be paid upon delivery of the car to E and the balance of
P75,000.00 shall be paid in five equal monthly installments of P15,000.00 each. The car was delivered
to E, and E paid the amount of P75,000.00 to D. Less than one month thereafter, the car was stolen
from E’s garage with no fault on E’s part and was never recovered. Is E legally bound to pay the said
unpaid balance of P75,000.00? Explain your answer. (1990 Bar Question)

SUGGESTED ANSWER: Yes, E is legally bound to pay the balance of P75,000.00. The ownership of the car
sold was acquired by E from the moment it was delivered to him. Having acquired ownership, E bears
the risk of the loss of the thing under the doctrine of res perit domino. (Articles 1496, 1497, Civil Code).

IX. Documents of Title

X. Remedies of an Unpaid Seller

Spouses Macario and Bonifacia Dakila entered into a contract to sell with Honorio Cruz over a parcel
of industrial land in Valenzuela, Bulacan for a price of Three Million Five Hundred Thousand Pesos
(P3,500,000.00). The spouses would give a downpayment of Five Hundred Thousand Pesos
(P500,000.00) upon the signing of the contract, while the balance would be paid for the next three (3)
consecutive months in the amount of One Million Pesos (P1,000,000.00) per month. The spouses paid
the first two (2) installments but not the last installment. After one (1) year, the spouses offered to
pay the unpaid balance which Honorio refused to accept. The spouses filed a complaint for specific
performance against Honorio invoking the application of the Maceda Law. If you are the judge, how
will you decide the case? (2014 BAR)

Answer: I will rule in favor of Honorio. The invocation of the Maceda Law is misplaced. The law applies
only to sale or financing of realty on installment payments including residential units or residential
condominium apartments and does not apply to sales of industrial units or industrial lands like in the
case presented. Another reason why the Maceda law will not apply is that, the sale in the case at bar is
not the sale on installment as contemplated by the law. The sale on installment covered by the Maceda
Law is one where the price is paid or amortized over a certain period in equal installments. The sale to
the Spouses Dakila is not a sale on installment but more of a straight sale where a down payment is to
be made and the balance to be paid in a relatively short period of three months.

Priscilla purchased a condominium unit in Makati City from the Citiland Corporation for a price of P10
Million, payable P3 Million down and the balance with interest thereon at 14% per annum payable in
sixty (60) equal monthly installments of P 198,333.33. They executed a Deed of Conditional Sale in
which it is stipulated that should the vendee fail to pay three (3) successive installments, the sale shall
be deemed automatically rescinded without the necessity of judicial action and all payments made by
the vendee shall be forfeited in favor of the vendor by way of rental for the use and occupancy of the
unit and as liquidated damages. For 46 months, Priscilla paid the monthly installments religiously, but
on the 47th and 48th months, she failed to pay. On the 49th month, she tried to pay the installments
due but the vendor refused to receive the payments tendered by her. The following month, the
vendor sent her a notice that it was rescinding the Deed of Conditional Sale pursuant to the
stipulation for automatic rescission, and demanded that she vacate the premises. She replied that the
contract cannot be rescinded without judicial demand or notarial act pursuant to Article 1592 of the
Civil Code. a. Is Article 1592 applicable? (3%) b. Can the vendor rescind the contract? (2%) (2000 Bar
Question)

SUGGESTED ANSWER: a) Article 1592 of the Civil Code does not apply to a conditional sale. In Valarao v.
CA, 304 SCRA 155, the Supreme Court held that Article 1592 applies only to a contract of sale and not to
a Deed of Conditional Sale where the seller has reserved title to the property until full payment of the
purchase price. The law applicable is the Maceda Law. b) No, the vendor cannot rescind the contract
under the circumstances. Under the Maceda Law, which is the law applicable, the seller on Installment
may not rescind the contract till after the lapse of the mandatory grace period of 30 days for every one
year of Installment payments, and only after 30 days from notice of cancellation or demand, for
rescission by a notarial act. In this case, the refusal of the seller to accept payment from the buyer on
the 49th month was not justified because the buyer was entitled to 60 days grace period and the
payment was tendered within that period. Moreover, the notice of rescission served by the seller on the
buyer was not effective because the notice was not by a notarial act. Besides, the seller may still pay
within 30 days from such notarial notice before rescission may be effected. All these requirements for a
valid rescission were not complied with by the seller. Hence, the rescission is invalid.

What are the so-called “Maceda” and “Recto” laws in connection with sales on installments? Give the
most important features of each law. (5%) (1999 Bar Question)

SUGGESTED ANSWER: The Maceda Law (R.A. 655) is applicable to sales of immovable property on
installments. The most important features are (Rillo v. CA, 247 SCRA 461): (1) After having paid
installments for at least two years, the buyer is entitled to a mandatory grace period of one month for
every year of installment payments made, to pay the unpaid installments without interest. If the
contract is cancelled, the seller shall refund to the buyer the cash surrender value equivalent to fifty
percent (50%) of the total payments made, and after five years of installments, an additional five
percent (5%) every year but not to exceed ninety percent (90%) of the total payments made. (2) In case
the installments paid were less than 2 years, the seller shall give the buyer a grace period of not less
than 60 days. If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after 30 days from receipt by the buyer of the notice of cancellation or
demand for rescission by notarial act. The Recto Law (Art. 1484) refers to sale of movables payable in
installments and limiting the right of seller, in case of default by the buyer, to one of three remedies: (a)
exact fulfillment; (b) cancel the sale if two or more installments have not been paid; (c) foreclose the
chattel mortgage on the things sold, also in case of default of two or more installments, with no further
action against the purchaser.

XI. Performance of Contract

A buyer ordered 5,000 apples from the seller at P20 per apple. The seller delivered 6,000 apples. What
are the rights and obligations of the buyer? (2011 BAR)

(A) He can accept all 6,000 apples and pay the seller at P20 per apple.
(B) He can accept all 6,000 apples and pay a lesser price for the 1,000 excess apples.
(C) He can keep the 6,000 apples without paying for the 1,000 excess since the seller delivered them
anyway.
(D) He can cancel the whole transaction since the seller violated the terms of their agreement.

X sold a parcel of land to Y on 01 January 2002, payment and delivery to be made on 01 February
2002. It was stipulated that if payment were not to be made by Y on 01 February 2002, the sale
between the parties would automatically be rescinded. Y failed to pay on 01 February 2002, but
offered to pay three days later, which payment X refused to accept, claiming that their contract of sale
had already been rescinded. Is X's contention correct? Why? (2003 Bar Question)

SUGGESTED ANSWER: No, X is not correct. In the sale of immovable property, even though it may have
been stipulated, as in this case, that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as
long as no demand for rescission of the contract has been made upon him either judicially or by a
notarial act (Article 1592, New Civil Code). Since no demand for rescission was made on Y, either
judicially or by a notarial act, X cannot refuse to accept the payment offered by Y three (3) days after the
expiration of the period.

ANOTHER SUGGESTED ANSWER: This is a contract to sell and not a contract of absolute sale, since as
there has been no delivery of the land. Article 1592 of the New Civil Code is not applicable. Instead,
Article 1595 of the New Civil Code applies. The seller has two alternative remedies: (1) specific
performance, or (2) rescission or resolution under Article 1191 of the New Civil Code. In both remedies,
damages are due because of default.

ALTERNATIVE ANSWER: Yes, the contract was automatically rescinded upon Y’s failure to pay on 01
February 2002. By the express terms of the contract, there is no need for X to make a demand in order
for rescission to take place. (Article 1191, New Civil Code; Suria v. IAC, 151 SCRA 661 [1987]; U.P. v. de
los Angeles, 35 SCRA 102 [1970]).

Bert offers to buy Simeon’s property under the following terms and conditions: P1 million purchase
price, 10% option money, the balance payable in cash upon the clearance of the property of all illegal
occupants. The option money is promptly paid and Simeon clears the property of all illegal occupants
in no time at all. However, when Bert tenders payment of the balance and asks Simeon for the deed
of absolute sale, Simeon suddenly has a change of heart, claiming that the deal is disadvantageous to
him as he has found out that the property can fetch three times the agreed purchase price. Bert seeks
specific performance but Simeon contends that he has merely given Bert an option to buy and nothing
more, and offers to return the option money which Bert refuses to accept.
a. Explain the nature of an option contract. (2%)
b. Will Bert’s action for specific performance prosper? Explain. (4%)
c. May Simeon justify his refusal to proceed with the sale by the fact that the deal is financially
disadvantageous to him? Explain. (4%) (2002 Bar Question)

SUGGESTED ANSWER:
A. An option contract is one granting a privilege to buy or sell within an agreed time and at a determined
price. It must be supported by a consideration distinct from the price. (Art. 1479 and 1482, NCC)
B. Bert’s action for specific performance will prosper because there was a binding agreement of sale, not
just an option contract. The sale was perfected upon acceptance by Simeon of 10% of the agreed price.
This 3mount is in reality earnest money which, under Art. 1482, “shall be considered a3 part of the price
arid as proof of the perfection of the contract.” (Topacio v. CA, 211 SCRA 291[1992j; Villongco Realty v.
Bormaheco, 65 SCRA 352 [1975]).
C. Simeon cannot justify his refusal to proceed with the sale by the fact that the deal is financially
disadvantageous to him. Having made a bad bargain is not a legal ground for pulling out of a binding
contract of sale, in the absence of some actionable wrong by the other party (Vales v. Villa, 35 Phil. 769
[1916]), and no such wrong has been committed by Bert.

LT applied with BPI to purchase a house and lot in Quezon City, one of its acquired assets. The amount
offered was P1,000,000.00 payable, as follows: P200,000.00 down payment, the balance of
P800.000.00 payable within 90 days from June 1, 1985. BPI accepted the offer, whereupon LT drew a
check for P200,000.00 in favor of BPI which the latter thereafter deposited in its account. On
September 5, 1985, LT wrote BPI requesting extension until October 10, 1985, within which to pay the
balance, to which BPI agreed. On October 5, 1985, due to the expected delay in the remittance of the
needed amount by his financier from the United States, LT wrote BPI requesting a last extension until
October 30, 1985. within which to pay the balance. BPI denied LTs request because another had
offered to buy the same property for P1,500,000.00, cancelled its agreement with LT and offered to
return to him the amount of P200,200.00 that LT had paid to it. On October 20, 1985, upon receipt of
the amount of P800,000.00 from his US financier, LT offered to pay the amount by tendering a
cashier’s check therefor but which BPI refused to accept. LT then filed a complaint against BPI in the
RTC for specific performance and deposited in court the amount of P800,000.00.

Is BPI legally correct in cancelling its contract with LT? (1993 Bar Question)

SUGGESTED ANSWER: BPI is not correct in cancelling the contract with LT. In Lina Topacio v. Court of
Appeals and BPI Investment (G. R. No. 102606, July 3. 1993, 211 SCRA 291), the Supreme Court held that
the earnest money is part of the purchase price and is proof of the perfection of the contract. Secondly,
notarial or judicial rescission under Art. 1592 and 1991 of the Civil Code is necessary (Taguba v. de Leon,
132 SCRA 722).

ALTERNATIVE ANSWER: BPI is correct in cancelling its contract with LT but BPI must do so by way of
judicial rescission under Article 1191 Civil Code. The law requires a judicial action, and mere notice of
rescission is insufficient if it is resisted. The law also provides that slight breach is not a ground for
rescission (Song Fo & Co. vs. Hawaiian Phil. Co., 47 Phils. 821). Delay in the fulfillment of the obligation
(Art. 1169, Civil Code) is a ground to rescind, only if time is of the essence. Otherwise, the court may
refuse the rescission if there is a just cause for the fixing of a period.
A sold to B a house and lot for P50,000.00 payable 30 days after the execution of the deed of sale. It
was expressly agreed in the deed that the sale would ipso facto be of no effect upon the buyer’s
failure to pay as' agreed. B failed to pay on maturity, and A sued to declare the contract of no force
and effect. If B tendered payment before the action was filed, but subsequent to the stipulated date
of payment, would the action prosper? Why? (1988 Bar Question)

SUGGESTED ANSWER: The action would not prosper in such a case. According to the law, “in the sale of
immovable property, even though it may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after
the expiration of the period, so long as no demand for the rescission of the contract has been made
upon him either judicially or by notarial act. After the demand, the court may not grant him a new
term.” (Art. 1592, CC.) Here, at the time B tendered payment of the purchase price, there was still no
demand made upon him by A for the payment of said purchase price either judicially or by notarial act.

XII. Warranties

Knowing that the car had a hidden crack in the engine, X sold it to Y without informing the latter
about it. In any event, the deed of sale expressly stipulated that X was not liable for hidden defects.
Does Y have the right to demand from X a reimbursement of what he spent to repair the engine plus
damages? (2011 BAR)

(A) Yes. X is liable whether or not he was aware of the hidden defect.
(B) Yes, since the defect was not hidden; X knew of it but he acted in bad faith in not disclosing the fact
to Y.
(C) No, because Y is in estoppel, having changed engine without prior demand.
(D) No, because Y waived the warranty against hidden defects.

Acme Cannery produced sardines in cans known as "Sards." Mylene bought a can of Sards from a
store, ate it, and suffered from poisoning caused by a noxious substance found in the sardines.
Mylene filed a case for damages against Acme. Which of the following defenses will hold? (2011 BAR)

(A) The expiry date of the "Sards" was clearly printed on its can, still the store sold and Mylene bought it.
(B) Mylene must have detected the noxious substance in the sardines by smell, yet she still ate it.
(C) Acme had no transaction with Mylene; she bought the "Sards" from a store, not directly from Acme.
(D) Acme enjoys the presumption of safeness of its canning procedure and Mylene has not overcome
such presumption.

A warranty inherent in a contract of sale, whether or not mentioned in it, is known as the (2011 BAR)

(A) warranty on quality.

(B) warranty against hidden defects.
(C) warranty against eviction.
(D) warranty in merchantability.

XIII. Breach of Contract

XIV. Extinguishment of the Sale
Dux leased his house to Iris for a period of 2 years, at the rate of P25,000.00 monthly, payable
annually in advance. The contract stipulated that it may be renewed for another 2-year period upon
mutual agreement of the parties. The contract also granted Iris the right of first refusal to purchase
the property at any time during the lease, if Dux decides to sell the property at the same price that the
property is offered for sale to a third party. Twenty-three months after execution of the lease
contract, Dux sold the house to his mother for P2 million. Iris claimed that the sale was a breach of her
right of first refusal. Dux said there was no breach because the property was sold to his mother who is
not a third party. Iris filed an action to rescind the sale and to compel Dux to sell the property to her
at the same price. Alternatively, she asked the court to extend the lease for another 2 years on the
same terms. Can Iris seek rescission of the sale of the property to Dux’s mother? (3%) (2008 Bar
Question)

SUGGESTED ANSWER: Iris can seek rescission because pursuant to Equatorial Realty Co. v. Mayfair
Theater (264 SCRA 483 [1996]) rescission is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract of sale may causes or the
protection of some incompatible and preferred right.

Adela and Beth are co-owners of a parcel of land. Beth sold her undivided share of the property to
Xandro, who promptly notified Adela of the sale and furnished the latter a copy of the deed of
absolute sale. When Xandro presented the deed for registration, the register of deeds also notified
Adela of the sale, enclosing a copy of the deed with the notice. However, Adela ignored the notices. A
year later, Xandro filed a petition for the partition of the property. Upon receipt of summons, Adela
immediately tendered the requisite amount for the redemption. Xandro contends that Adela lost her
right of redemption after the expiration of 30 days from her receipt of the notice of the sale given by
him. May Adela still exercise her right of redemption? Explain. (5%) (2002 Bar Question)

SUGGESTED MAIN ANSWER: Yes, Adela may still exercise her right of redemption notwithstanding the
lapse of more than 30 days from notice of the sale given to her because Article 1623 of the New Civil
Code requires that the notice in writing of the sale must come from the prospective vendor or vendor as
the case may be. In this case, the notice of the sale was given by the vendee and the Register of Deeds.
The period of 30 days never tolled. She can still avail of that right.

FIRST ALTERNATIVE MAIN ANSWER: Adela can no longer exercise her right of redemption. As co-owner,
she had only 30 days from the time she received written notice of the sale which in this case took the
form of a copy of the deed of sale being given to her (Conejero v. CA, 16 SCRA 775 [196SJ). The law does
not prescribe any particular form of written notice, nor any distinctive method for notifying the
redemptioner (Etcuban v. CA, 148 SCRA 507 [1987]). So long as the redemptioner was informed in
writing, he has no cause to complain (Distrito v. CA, 197 SCRA 606, 609 [1991]). In fact in Distrito, a
written notice was held unnecessary where the co-owner had actual knowledge of the sale, having
acted as middleman and being present when the vendor signed the deed of sale.

Betty and Lydia were co-owners of a parcel of land. Last January 31, 2001, when she paid her real
estate tax, Betty discovered that Lydia had sold her share to Emma on November 10, 2000. The
following day, Betty offered to redeem her share from Emma, but the latter replied that Betty's right
to redeem has already prescribed. Is Emma correct or not? Why? (5%) (2001 Bar Question)
SUGGESTED ANSWER: Emma, the buyer, is not correct. Betty can still enforce her right of legal
redemption as a co-owner. Article 1623 of the Civil Code gives a co-owner 30 days from written notice
of the sale by the vendor to exercise his right of legal redemption. In the present problem, the 30-day
period for the exercise by Betty of her right of redemption had not even begun to run because no notice
in writing of the sale appears to have been given to her by Lydia.

On January 2, 1980, A and B entered into a contract whereby A sold to B a parcel of land for and in
consideration of P 10,000.00, A reserving to himself the right to repurchase the same. Because they
were friends, no period was agreed upon for the repurchase of the property.

A. Until when must A exercise his right of repurchase?

B. If A fails to redeem the property within the allowable period, what would you advise B to do for his
better protection? (1993 Bar Question)

SUGGESTED ANSWER: a. A can exercise his right of repurchase within four (4) years from the date of the
contract (Art. 1606, Civil Code). b. I would advise B to file an action for consolidation of title and obtain a
judicial order of consolidation which must be recorded in the Registry of Property (Art. 1607, Civil Code).

“X” offered to buy the house and lot of “Y” for P300,000. Since “X” had only P200,000 in cash at the
time, he proposed to pay the balance of P100,000 in four (4) equal monthly installments. As the title to
the property was to be immediately transferred to the buyer, “X”, to secure the payment of the balance
of purchase price, proposed to constitute a first mortgage on the property in favor of “Y”. “Y” agreed to
the proposal so that on April 15, 1987, the contract of sale in favor of “X” was executed and on the same
date (April 15, 1987), “X” constituted the said first mortgage. When the first installment became due.
“X” defaulted in the payment thereof. “Y” now brings an action to rescind the contract of sale, which “X”
opposed. How would you decide the conflict? Give your reasons. (1989 Bar Question)

SUGGESTED ANSWER: Either of the following answers should be given full credit:
1. “Y” cannot rescind. The relationship is no longer that of buyer and seller because the sale was already
perfected and consummated. The relationship is already that of mortgagor and mortgagee. Rescission is
not a principal action retaliatory in character but a subsidiary one available only in the absence of any
other legal remedy. Foreclosure is not only a legal but a contractual remedy. The debtor must pay and,
in case of breach, the mortgagee may foreclose.
2. “Y” can rescind. Specific performance and rescission are alternative remedies in breach of reciprocal
obligations. The contract is only partly consummated. The price is not fully paid. The mortgage is an
accessory contract of guarantee arid can be waived by the creditor who can avail of his remedies in the
principal contract.

ALTERNATIVE ANSWERS: 1. Considering that the default covers only P25,000.00 and the sum of
P2OO,OOO.0O has already been paid, there is only, a slight or casual breach negating the right of the
seller to rescind the contract of sale. 2. Rescission is available provided that the vendor give the vendee
the 60-day period as required by the Maceda Law or the Realty Installment Buyers Law.

XV. The Subdivision and Condominium Buyers' Protective Decree (P.D. 957)

Bernie bought on installment a residential subdivision lot from DEVLAND. After having faithfully paid
the installments for 48 months. Bernie discovered that DEVLAND had failed to develop the subdivision
in accordance with the approved plans and specifications within the time frame in the plan. He thus
wrote a letter to DEVLAND informing it that he was stopping payment. Consequently, DEVLAND
cancelled the sale and wrote Bernie, informing him that his payments are forfeited in its favor. Was
the action of DEVLAND proper? Explain (2%) (2005 Bar Question)

SUGGESTED ANSWER: Assuming that the land is a residential subdivision project under P.D. No. 957
(The Subdivision and Condominium Buyers Protective Decree), DEVLAND’s action is not proper because
under Section 23 of said Decree, no installment payment shall be forfeited to the owner or developer
when the buyer, after due notice, desists from further payment due to the failure of the owner-
developer to develop the subdivision according to the approved plans and within the time limit for
complying with the same. Discuss the rights of Bernie under the circumstances. (2%) (2005 Bar
Question)

SUGGESTED ANSWER: Under the same Section of the Decree, Bernie may, at his option, be reimbursed
the total amount paid including amortization interests but excluding delinquency interests at the legal
rate. He may also ask the Housing and Land Use Regulatory Board to apply penal sanctions against
DEVLAND consisting of payment of administrative fine of not more than P20.000.00 and/or
imprisonment for not more than 20 years.

Supposing DEVLAND had fully developed the subdivision but Bernie failed to pay further installments
after 4 years due to business reverses. Discuss the rights and obligations of the parties. (2%) (2005 Bar
Question)

SUGGESTED ANSWER: Under R.A. No. 6552 (Maceda Law). DEVLAND has the right to cancel the contract
but it has to refund Bernie the cash surrender value of the payments on the property equivalent to 50%
of the total payments made.

ADDITIONAL SUGGESTED ANSWER: Bernie has the right to pay, without additional interest, the unpaid
installments within the grace period granted him by R.A 6552 equivalent to one-month for every year of
installment payments, or four months in this case. After the lapse of four months DEVLAND may cancel
the contract after thirty days from and after Bernie receives a notice of cancellation or demand for
rescission of the contract by notarial act. (Sec. 4, R.A. 6552) Bernie also has the right to sell or assign his
rights before the cancellation of the contract (Sec. 5)

XVI. The Condominium Act (R.A. No. 4726) The Ifugao Arms is a condominium project in Baguio City. A
strong earthquake occurred which left huge cracks in the outer walls of the building. As a result, a
number of condominium units were rendered unfit for use. May Edwin, owner of one of the
condominium units affected, legally sue for partition by sale of the whole project? Explain. (4%) (2009
Bar Question)

SUGGESTED ANSWER: Yes, Edwin may legally sue for partition by sale of the whole condominium
project under the following conditions: (a) the damage or destruction caused by the earthquake has
rendered one-half (½) or more of the units therein untenantable, and (b) that the condominium owners
holding an aggregate of more than thirty (30%) percent interest of the common areas are opposed to
the restoration of the condominium project (Section 8[b], Republic Act No. 4726 “Condominium Act”).